Closing Costs for the Buyer, Paid by the Seller

Seller Concessions / Closing Cost Assistance

So you are going to ask the Seller to help pay some of your closing costs.

Let’s take a look at what that means for both you as the Buyer and for the Seller.

It is important to know how your request to have the Seller pay some of your closing costs impacts them. It will help you create an offer that has a better chance of getting accepted.

****NOTE: For purposes of this discussion, when we use the term “closing costs” it will be referring to the combined cost of BOTH closing costs AND prepaid expenses.****

First, you need to understand that both the Buyer and the Seller have closing costs.

The Buyers closing costs include a wide variety of expenses that usually add up to 3%-5% of the purchase price.

Here are few examples of closing costs:

-Lender fees such as origination fee, processing fee, or underwriting fee
-Title Insurance and Title Fees
-Government and/or recording fees
-Notary fees

The most common prepaids items are:

-Upfront property taxes
-Homeowners insurance
-Escrow account money
-Mortgage interest

Your property tax is going to be one of the main expenses that makes your total amount fluctuate. Your city, county and school district all impact the amount of property taxes you will pay.

The Seller's closing costs also include numerous expenses and usually add up to 7-9% of the purchase price.

Here are a few examples:

-Michigan property Transfer Tax
-Realtor commissions - Sell Side
-Realtor commissions - Buy Side
-Title Insurance and Title Fees
-Unpaid property tax
-Government and/or recording fees
-Notary fees

While it is not a closing cost, the Seller also has to pay off the remainder of their mortgage before the property is sold. This is done at closing.

OK, so now you understand Buyer and Seller closing costs.

Let’s move on!

When a Buyer asks the Seller to pay part of their closing costs, the Buyer is asking the Seller to pay all of their own closing costs PLUS some of the Buyer's!

The Buyer then has less cash to come up with at closing because the Seller is paying some of their costs.

The request to pay for closing costs is usually in either a flat dollar amount or as a percentage of the total purchase price. For our examples, we’ll use a flat dollar amount.

Let’s say the home you are looking to purchase is $200,000 and you are going to ask for $8,000 in closing cost assistance from the Seller.

This means the Seller must take $8,000 in expenses right off the top before paying their own expenses.

Here is an example:

Offer Price $200,000
Buyer Closing Costs Paid by Seller -$8,000
Amount left to pay Seller Expenses $192,000

As you can see, asking the Seller to pay $8,000 of Buyer closing costs in this scenario is the same as offering $192,000 (and not having the Seller pay closing costs).

So while the Buyer is bringing less money to the table at closing, the Seller is getting less money once the property is sold.

Remember, we want to create an offer that is beneficial to both the Buyer and Seller! Sometimes we are competing against other Buyers and want our offer to look as desirable as possible.

So, is there a solution? Yes! Read on!

A common way to “balance” this out is to increase the offer price by some amount.

We’ll keep our same $200,000 house and do another example:

Increased> Offer Price $208,000
Buyer Closing Costs Paid by Seller -$8,000
Amount left to pay Seller Expenses $200,000

In this case, the purchase price was increased by the amount of closing costs requested by the Buyer.

This can be a win-win situation because

1) The Seller is getting the price they are looking for and
2) The Buyer is getting their closing costs paid and has to bring less cash to closing.

There are endless possibilities when moving the numbers around, but this should give you an idea of how the closing costs work!

Sometimes, appraisals can be tricky to understand. I hope this helps!

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